Daqin Holding Limited v Elite Legal Limited
[2023] NZHC 3338
•24 November 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-848
[2023] NZHC 3338
BETWEEN DAQIN HOLDING LIMITED
Plaintiff
AND
ELITE LEGAL LIMITED
Defendant
Hearing: 16 October 2023 Appearances:
J A Wickes for the Plaintiff
T M Pasley for the Defendant
Judgment:
24 November 2023
JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR
[Summary judgment as to liability]
This judgment was delivered by me on 24 November 2023 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
Solicitors:
Loo & Koo (F L Chan/Jennifer A Wickes), Newmarket, Auckland, for the Plaintiff Robertsons (Tom Pasley), Auckland, for the Defendant
DAQIN HOLDING LIMITED v ELITE LEGAL LIMITED [2023] NZHC 3338 [24 November 2023]
TABLE OF CONTENTS
Paragraph
Introduction [1]
Background [2]
Daqin’s application for summary judgment [6]
Affidavit of Yuqi Yang dated 27 April 2023 [10]
Elite Legal’s opposition [19]
Affidavit of Hong (Truly) Zhu dated 1 August 2023 [20]
Reply affidavit of Yuqi Yang dated 7 September 2023 [31]
Legal principles [38]
Analysis [41]
Daqin’s submissions [43]
Elite Legal’s submissions [54]
Duty of care and breach [57]
Foreseeability [58]
Causation [57]
Yuhan’s third party liability [67]
Liability should be determined at the same time as quantum, not separately
[68]
Conclusion as to liability [71]
Orders [74]
Introduction
[1] Daqin Holding Limited (Daqin) seeks summary judgment against Elite Legal Limited (Elite Legal) after its alleged professional negligence in a conveyancing transaction in which it acted for Daqin.
Background
[2] In November 2022, Daqin, a property investment vehicle, engaged Elite Legal to assist with the conveyancing of two properties: 14 Welland Place, Hillcrest (the Hillcrest property) and 84 Admirals Court, Greenhithe (the Greenhithe property) (together, the properties). Daqin was to obtain the properties by paying off, via Elite Legal and the property’s owners, a loan from Mr Li Gao (Mr Gao) (the Li Gao loan) secured by a mortgage on each property, to contemporaneously obtain the transfer of the properties.
[3] For the Greenhithe property, the transaction proceeded without issue and Daqin obtained title to the property.
[4] For the Hillcrest property, Elite Legal accepts that it was negligent and in breach of its retainer by failing to obtain a guaranteed title search (the guaranteed title search) before making payment of Daqin’s $2,445,534.55 to Mr Gao on 8 December 2022 to clear the mortgage. Title was not immediately obtained by Daqin due to a caveat lodged on 2 December 2022 by Mr Sifen Li (Mr Li) securing an additional loan of $501,555.67 (the Sifen Li loan). Daqin subsequently paid the Sifen Li loan and Elite Legal undertook a clear guaranteed title search. Subsequently, General Finance Limited (General Finance) lodged a caveat for an unpaid fee of
$38,935.41 (the General Finance fee), which Daqin also paid. Eventually on 17 December 2022, Elite Legal obtained title to the Hillcrest Property for Daqin.
[5] On 27 April 2023, Daqin commenced proceedings seeking summary judgment against Elite Legal for their negligence and breach of contract in failing to obtain the guaranteed title search. Despite accepting its negligence and breach of contract, Elite Legal oppose summary judgment claiming its conduct did not cause the alleged
loss, and that even if summary judgment were sought only as to liability, Daqin has not shown that the only triable issue is the amount claimed.
Daqin’s application for summary judgment
[6]Daqin seeks the following order:1
[A]n order for Summary Judgment against the Defendant for relief sought in terms of the Statement of Claim filed herein together with interest as pleaded and that the costs of and incidental to the application be fixed and paid by the Defendant to the Plaintiff.
[7]The grounds on which the order is sought are:2
(a) the Defendant has no defence to the claim set out in the Statement of Claim filed herein; and
(b) appearing in the affidavit of Yuqi Yang affirmed and filed herein.
[8]In its Statement of Claim, Daqin claims:3
a) judgment in the sum of $540,491.08;
b) interest on the sum of $540,491.08 from the date of payment (19 December 2022) to the date of judgment; and
c) the costs of and incidental to these proceedings.
[9]Therein, Daqin further sets out its claim as follows:
1. The Plaintiff is a duly incorporated company having its registered office at 14 Welland Place, Hillcrest, Auckland 0627 and carries on business as a property investor.
2. The Defendant is a duly incorporated company having its registered office at 97a Manukau Road, Epsom, Auckland 1023 and carries on business as legal professionals providing legal services.
3. In or about November 2022 the Plaintiff retained the Defendant to act for it on a conveyancing transactions details:
a. to pay to the registered proprietors of the properties at 14 Welland Place, Hillcrest (certificate of title NA19B/652) and 84 Admirals Court Drive, Greenhithe (certificate of title 675173) the amount secured against those properties and owing to the mortgagee
1 Interlocutory application for summary judgment dated 27 April 2023 at [1].
2 At [2].
3 Statement of claim dated 27 April 2023.
Li Gao and ensure that the registered proprietors use such monies to repay the loan to Li Gao;
b. contemporaneously with the payment referred to in (a) above, to obtain the transfer to the Plaintiff of the properties at 14 Welland Place and 84 Admirals Court Drive.
4. It was a term of the Defendant’s retainer that it would exercise reasonable skill and care in carrying out its work in the transaction.
5. On or about 8 December 2022 the Plaintiff paid the Defendant
$2,445,534.55 being the amount owing by the registered proprietors to Li Gao and secured against the properties.
6. On or about 8 December 2022 the Defendant paid $2,445,534.55 to the solicitors for the registered proprietors of the properties but failed to obtain a guaranteed search of the title to the 14 Welland Place property. The solicitors for the registered proprietors paid those monies to the solicitors for Li Gao to repay the loan secured against the properties.
7. A caveat had been lodged for registration against the title to the Welland property on or about 2 December 2022 and by reason of the caveat the 14 Welland property could not be transferred to the Plaintiff.
8. The interest supporting the caveat was a loan to the registered proprietor of the Welland property from Sifen Li secured by second mortgage against the Welland St property.
9. The registered proprietor of the Welland property was unable or unwilling to repay Sifen Li and to protect the amount already paid by the Plaintiff to the registered proprietors and disbursed by the Defendant to the solicitors for Li Gao the Plaintiff was obliged to repay the debt to Sifen Li to obtain removal of the caveat and enable the transfer of the Welland property to the Plaintiff.
10. Accordingly, on or about 16 December 2022 the Plaintiff paid to the solicitors for the registered proprietors $501,555.67 to repay the debt to Sifen Li secured against the Welland property.
11. Before the Welland property was transferred to the Plaintiff, General Finance lodged a further caveat against the Welland Street title with the interest supporting the caveat being a lenders fee owed by the registered proprietor and secured against the property.
12. The registered proprietor of the Welland property was unable or unwilling to repay General Finance and to protect the amounts paid by the Plaintiff to the registered proprietors the Plaintiff was obliged to pay and did on 19 December 2022 pay General Finance $38,935.41 being the amount owed to General Finance to obtain removal of the caveat and enable the transfer of the Welland property to the Plaintiff.
13. In breach of its retainer and its obligations to the Plaintiff the Defendant failed to exercise reasonable skill and care when it received from the Plaintiff and paid to the registered proprietors the amount owing to Li Guo without first obtaining a guaranteed search of the title to the Welland
property which would have revealed the existence of the caveat and loan from Sifen Li secured against the property which prevented the transfer of the Welland property to the Plaintiff.
14. The Plaintiff’s breach of its retainer and obligations caused loss to the Plaintiff of $501,555.67 and $38,935.41. Add on that being the additional amount that was forced to pay to obtain title to the Welland property.
Affidavit of Yuqi Yang dated 27 April 2023
[10] Yuqi Yang (Yuqi),4 one of Daqin’s directors, has made an affidavit in support of Daqin’s application for summary judgment.5
[11] By way of background, Yuqi deposes that in November 2022 Daqin engaged Elite Legal to act for it on conveyancing transactions. He says his sister, Yuhan Yang (Yuhan), and brother-in-law, Xing Guo (Xing) owned the properties, against which Li Gao had a registered mortgage securing the Li Gao loan of about $2.5 million.
[12] Yuqi says that Daqin, Xing and Yuhan agreed that Daqin would repay the Li Gao loan in exchange for Xing and Yuhan’s transfer of the properties to Daqin mortgage free. Yuqi says that having obtained a loan repayment figure from Mr Gao’s solicitor on about 8 December 2022, Daqin transferred that amount ($2,445,534.55) to Elite Legal for it to pay Xing and Yuhan’s solicitors to repay the mortgage and obtain title to the properties for Daqin.
[13] Yuqi deposes that Elite Legal paid Xing and Yuhan’s solicitors who then paid Mr Gao’s solicitors to discharge the mortgage. However, he deposes Elite Legal did not obtain a guaranteed title search before transferring the money to Xing and Yuhan’s solicitors. He says Daqin could not obtain title to the Hillcrest property because a caveat had been lodged against it.
[14] On that caveat, Yuqi says Daqin learned that Xing had borrowed money from Mr Li using the Hillcrest property as security. As Xing was unable to repay the Sifen Li loan nor obtain release of the caveat, to protect its position Daqin was forced to repay it to enable withdrawal of the caveat and secure the transfer of the property.
4 For convenience and clarity, and meaning no disrespect, given the commonality of names, I will generally refer to each family member by their given name.
5 Affidavit of Yuqi Yang in support of summary judgment application dated 27 April 2023.
[15] Yuqi then says a further caveat was lodged on 16 December 2022 by General Finance to protect a lender’s fee owed by Xing. Xing was similarly unable to repay the General Finance fee to obtain the caveat’s withdrawal.
[16] To obtain the withdrawal of both caveats, Yuqi says on 16 and 19 December 2022, Daqin repaid the Sifen Li loan and General Finance fee.
[17] Yuqi deposes that had Elite Legal obtained the guaranteed title search before paying Xing and Yuhan’s solicitors, Daqin would have discovered the secured Sifen Li loan and would not have proceeded with the transaction.
[18] Yuqi says there was an obligation on Elite Legal to exercise reasonable skill and care, which included an obligation to obtain the guaranteed title search. He says its failure caused Daqin’s loss, namely having to pay the Sifen Li loan and General Finance fee to obtain the Hillcrest property’s title.
Elite Legal’s opposition
[19]Elite Legal opposes the application on the following grounds:6
a. Elite Legal has a defence to Daqin's professional negligence claim (both in contract and negligence).
b. In any event, the issues raised in this proceeding, being allegations of professional negligence, are not suitable for summary judgment in that full and extensive discovery, factual evidence and cross-examination, and joinder of a third party (Yuhan Yang), will be required to determine disputed factual questions relevant to the issues of duty of care, standard of care, foreseeability, causation, remoteness, loss, mitigation and contributory negligence.
i. on a counterfactual analysis, had Daqin known about the additional debts ($540,491.08) secured to the title to 4 Welland Place, Hillcrest, Auckland (Welland Place) before 8 December 2022, it would have paid those debts plus the Li Gao loan ($2,445,534.55) and still acquired title to Welland Place and Admirals Court;
ii. on a market value analysis, even after Daqin paid both the additional debts ($540,491.08) secured to the title of Welland Place, and the Li Gao loan ($2,445,534.55) it still acquired both
6 Defendant’s notice of opposition to summary judgment dated 1 August 2023 at [1]–[3].
Welland Place and Admirals Court under market value, made a profit and did not suffer a real loss.
c. Alternatively, if Daqin suffered any loss (which is denied) it contributed to that alleged loss by electing to pay the additional debts ($540,491.08) secured to the title of Welland Place in circumstances where it could have taken alternative steps to mitigate its loss:
i. by taking Elite Legal's (and Loo & Koo's) legal advice to rely on Heping Yang's (Daqin director-shareholder and father of Yuhan Yang) pre-existing caveat lodged on the title to Welland Place and challenging the legality of the Sifen Li loan which supported that caveat;
ii. by considering exercising the mortgagee's power to remove the Sifen Li caveat;
iii.by agreeing with Sifen Li (and General Finance) to sell Welland Place and repay the additional debts from the proceeds of sale;
iv. by pursuing Yuhan Yang for the additional debts given she is solvent, and those debts were relationship property with her bankrupt husband, Xing Guo.
d. Elite Legal intends to join Yuhan Yang, a current Daqin shareholder (24%), to the proceeding as a third party on the basis that she is liable for the additional debts ($540,491.08) paid by Daqin which it now claims are damages payable by Elite Legal.
e. Further on the grounds and particulars pleaded in Elite Legal's statement of defence dated 1 August 2023.
Affidavit of Hong (Truly) Zhu dated 1 August 2023
[20] Hong (Truly) Zhu (Ms Zhu), a registered conveyancing practitioner at Elite Legal, has made an affidavit in support of Elite Legal’s opposition to summary judgment.7
[21] On Elite Legal’s engagement and retainer, Ms Zhu says that on 17 November 2022 Daqin’s father and son directors, Heping Yang (Heping) and Yuqi, engaged Elite Legal to assist them on a family transaction to arrange and document debt repayment and related conveyancing. Ms Zhu says Heping and Yuqi wished to help Xing and Yuhan repay the Li Gao loan which was oppressive and Heping said they were unable to repay due to financial difficulties. Heping and Yuqi had instructed that
7 Affidavit of Hong (Truly) Zhu on behalf of defendant in opposition to summary judgment dated 1 August 2023.
Daqin would receive title to the properties in exchange for repaying the Li Gao loan. Ms Zhu says she undertook a guaranteed title search of the properties on 16 November 2022, as the original date to repay and take title was to be 18 November 2022. She says this was delayed due to arguments between Heping and Yuqi, and Mr Gao over increased interest due to early repayment (the break fee).
[22]Ms Zhu then sets out the following key events:
(a)On 22 September 2022, Xing and Yuhan entered the Li Gao loan for
$3.4 million over 12 months which was secured by first and only mortgages over Yuhan and Xing’s relationship properties (the properties plus a further property in Sunnynook, Auckland).
(b)On about 22 October 2022, Xing and Yuhan repaid $900,000 when they sold the Sunnynook property, leaving $2,445,534.55 outstanding.
(c)On 25 October 2022 at 4.32 pm, Heping and Datang Investments Limited (another of Heping’s companies) lodged a caveat over the Hillcrest property allegedly supported by an existing advance from Heping and Yuqi to Xing and Yuhan.
(d)On 31 October 2022, Daqin was incorporated contemplating this transaction with Heping and Yuqi as its directors and Heping, Yuqi, and Yuhan holding 24, 52 and 24 per cent shareholdings respectively.
(e)On 16 November 2022, Elite Legal undertook a guaranteed title search, in preparation of anticipated settlement on 18 November, which showed the titles were clear excluding Heping’s 25 October 2022 caveat.
(f)On 17 November 2022, Elite Legal provided a letter of engagement to Heping and Yuqi relating to legal work to assist them to prepare the deed to enable repayment of the Li Gao loan in exchange for the properties’ titles.
(g)Also on 17 November 2022, Elite Legal assisted Heping to finalise and execute a deed of acknowledgment of debt and repayment under which Yuhan and Xing agreed to transfer the properties to Heping or his nominee (Daqin) in exchange for Heping’s repayment of the outstanding Li Gao loan.
(h)On 18 November 2022, issues arose between Heping and Yuqi (Daqin), and Mr Gao over the break fee, which caused settlement to be deferred.
(i)On 24 November 2022, Ms Zhu met with Heping who said he was being treated as an overseas person so could not personally take title to the properties but needed to take control of them to prevent further borrowing against them.
(j)On 1 December 2022, Yuhan became a director of Daqin but only for that day and was also granted a 38 per cent shareholding which she kept until at least 18 December 2022.
(k)On 7 December 2022 at 7.55 pm, Heping contacted Ms Zhu instructing urgent finalisation of the transaction, to pay the Li Gao loan and transfer the properties’ title to Daqin on 8 December 2022. Ms Zhu says she attempted to obtain more time to finalise the arrangement, but that Heping insisted it happen on 8 December 2022 because he would be returning to China.
(l)On 8 December 2022, Heping and Xing executed a deed of novation and security recording that the debt for repayment of the Li Gao loan was novated or assigned to Daqin and that upon paying the Li Gao loan the properties would be transferred to Daqin mortgage free.
(m)Also on 8 December 2022, on Daqin’s urgent instruction Elite Legal paid Daqin’s $2,445,534.55, the balance of the Li Gao loan, to Xing and Yuhan’s solicitors and attempted to transfer the properties’ title. Elite Legal then learned of Mr Li’s 2 December 2022 caveat supporting
a loan of $500,051.67 advanced to Xing and Yuhan on 26 October 2022. Ms Zhu notes Elite Legal’s surprise given Xing and Yuhan would have known about the Sifen Li loan when they entered the deeds on 17 November and 8 December 2022. Ms Zhu further says Xing and possibly Heping would have received notice of that caveat on 2 December 2022.
(n)Later on 8 December 2022, Elite Legal advised Daqin/Heping the following:
(i)it could demand the refund of the money from Xing and Yuhan because the undisclosed Sifen Li loan and caveat breached the 17 November 2022 deed;
(ii)it could consider exercising the mortgagee’s power to remove Mr Li’s caveat;
(iii)given Heping’s prior caveat he should consider applying for court removal of the caveat as Mr Li was not a registered financial service provider and had advanced the loan on commercial terms in breach of the Financial Service Providers (Registration and Disputes Resolution) Act 2008 and was arguably charging penalty interest.
(o)By the end of 8 December 2022, Heping on behalf of Daqin instructed Elite Legal to proceed and not seek a refund from Xing and Yuhan’s lawyers which was then held on trust. Ms Zhu says Heping still wished to proceed with repayment due to the discounted break fee Mr Gao had agreed to. Elite Legal’s counsel now accepts this timeframe was a misstatement and that the funds had already been transferred to repay the Li Gao loan by this point.
(p)On 9 November 2022, Daqin took title for the Greenhithe property.
(q)On 16 December 2022, contrary to Elite Legal and Loo & Koo’s advice, Daqin instructed Elite Legal to repay the Sifen Li Loan and transfer title of the Hillcrest property to Daqin. Ms Zhu undertook a clear guaranteed title search at 11.55 am and then transferred Daqin’s money to obtain removal of Mr Li’s caveat. At 3.20 pm General Finance lodged a caveat supported by a loan application fee of $38,935.41 which Xing and Yuhan had failed to pay. Heping again instructed Elite Legal to repay the General Finance fee.
(r)Later on 16 December 2022, Ms Zhu discussed the additional debts with Heping who said he and Daqin had chosen to repay the Sifen Li loan and General Finance fee because the Hillcrest property was relationship property with relationship debt so he wished to protect Yuhan from being pursued for the debt. Heping is said to have further noted that Yuqi may have been linked to the Sifen Li loan.
(s)On 17 November 2022, having cleared the General Finance caveat, Daqin obtained clear title to the Hillcrest property.
(t)On 18 December 2022, Yuhan’s 38 per cent shareholding was decreased to 24 per cent with Yuqi’s rising to 52 per cent.
[23] On Elite Legal’s defences, Ms Zhu says it has several defences to Daqin’s professional negligence claim. First, Ms Zhu says it was a family transaction and, in such circumstances, she does not think it was reasonably foreseeable that by not obtaining the guaranteed title search a caveat would be registered preventing transfer. Further, she says Elite Legal did not think that there would be any material non- disclosure by Xing and Yuhan to their family members. She says the fact the transaction was not at arm’s length was further made clear when Elite Legal advised Heping not to pay the Sifen Li loan but he decided to pay anyway.
[24] Second, Ms Zhu says Elite Legal was only given one day’s notice to finalise and settle despite telling Heping the urgency was not sensible and additional time was required. She deposes that if Elite Legal had had more time they would have
undertaken the additional guaranteed title search. Heping’s requirement for urgency in completing the transaction therefore impacted Elite Legal’s ability to ensure all checks and balances occurred.
[25] Third, Ms Zhu says Daqin did not need to repay the Sifen Li loan or the General Finance fee, but unreasonably chose to incur that cost. Therefore, she says Daqin’s failure to explore its options meant Elite Legal did not cause it loss.
[26] Fourth, Ms Zhu says that having been involved in the matter she is confident that had Xing and Yuhan disclosed the additional debts as part of the overall transaction, Heping and Yuqi would still have proceeded with the transaction and made a profit. This is clear from Heping’s reasoning for paying the Sifen Li loan and General Finance fee despite Elite Legal’s advice to the contrary.
[27] Fifth, Ms Zhu explains that based on the Hillcrest property’s estimated value, had Daqin agreed to pay the Sifen Li loan and General Finance fee from proceeds of its sale it would have obtained at least $864,465.45 in residual cash, alongside the title to the Greenhithe property it had already obtained.
[28] Sixth, Ms Zhu says she understands Yuhan and Xing may have entered into a contracting out agreement under the Property (Relationships) Act 1976 to protect Yuhan from this debt, but says any such agreement would be void having been entered into to defeat creditors.
[29] Finally, Ms Zhu says Elite Legal intends to join Yuhan to the proceeding as a third party given her liability for the loss.
[30] In concluding, Ms Zhu reasserts that Elite Legal has a defence and that it does not believe the factual and legal issues can be appropriately determined at the summary judgment stage.
Reply affidavit of Yuqi Yang dated 7 September 2023
[31] Yuqi has made a further affidavit in response to Ms Zhu’s.8 He disputes the following three areas of Ms Zhu’s affidavit:
(a)the nature of the transaction for which Daqin retained Elite Legal;
(b)the sequence of events on 8 December 2022, particularly the timing of the discovery of Sifen Li’s caveat relevant to Elite Legal’s release of money to Xing and Yuhan’s lawyers and further payment to Li Gao’s lawyers;
(c)whether Elite Legal’s failure to obtain the guaranteed title search before releasing Daqin’s money caused Daqin’s loss.
[32] On the transaction’s nature, Yuqi provides further background that Xing and Yuhan are now divorced but at the time Xing was in debt to Heping for over $8 million. He says Heping had a caveat over the Hillcrest property to protect that debt but that it was agreed Xing and Yuhan would transfer the properties to Heping or his nominee (Daqin) in part repayment of that debt. The Hillcrest property was in Xing’s name, while the Greenhithe property was in Yuhan’s name.
[33] Yuqi deposes that to achieve ownership Heping or Daqin were to repay the Li Gao loan. As the law firm Loo & Koo had acted for Yuhan in the past, Daqin had to use an alternative lawyer, for which they retained Elite Legal. Contrary to Ms Zhu’s statement that the legal retainer was to assist Xing and Yuhan to repay their debts, Yuqi deposes the retainer was to transfer the properties to Daqin to partly repay the debt Xing owed Heping.
[34] On the sequence of events, Yuqi first disputes that Daqin placed Elite Legal under pressure to settle on 8 December 2022 so as to negate or compromise Elite Legal’s obligations, particularly to obtain the guaranteed title search. He then sets out the timeline between when Elite Legal advised Daqin of the caveat and where Daqin’s
8 Affidavit of Yuqi Yang in reply dated 7 September 2023.
money was. While initially Ms Zhu disputed this timeline, she now accepts that was a misstatement. Briefly Yuqi sets out the following timeline for the 8 December 2022:
(a)at 3.25 pm Daqin transferred Elite Legal the money to be paid to Xing’s lawyers;
(b)at 3.32 pm Elite Legal paid the money to Xing’s lawyers;
(c)at 3.56 pm Xing’s lawyers confirmed they had transferred the money to Mr Gao’s lawyers;
(d)at 4.27 pm Elite Legal sent Daqin a screenshot showing Mr Li’s caveat.
[35] On causation, Yuqi rejects Ms Zhu’s initial contention that when Elite Legal discovered the caveat it could have recalled the money from Xing’s lawyers. As stated prior, this was a misstatement by Ms Zhu who now accepts the above timeline. Yuqi deposes that Daqin had no knowledge of the Sifen Li loan or caveat until Elite Legal informed it. He says Ms Zhu is incorrect that the Sifen Li loan was also Yuhan’s liability, stating that it was only Xing’s liability.
[36] After having been informed of the caveat, Yuqi says Daqin was anxious about the situation as no one could guarantee that the caveat could be removed and it was concerned further caveats may appear preventing transfer of the Hillcrest property. As it transpired, that was a well-founded fear as the General Finance caveat was then lodged. Ultimately, he says Daqin chose to pay the debts to protect its prior payment and secure the property.
[37] Yuqi notes the letter of engagement records that a guaranteed title search would be obtained and says that had it been obtained prior to the money’s transfer, Mr Li’s caveat would have been discovered and Daqin could have decided whether to proceed with the transaction or dispute the caveat then. He reaffirms that had Daqin been aware of the caveat prior to the transaction it would not have proceeded with the transaction because the benefit would have been negligible, and it carried risk. Finally, he deposes it is incorrect that Daqin paid the Sifen Li loan to protect him or Yuhan as
he knew nothing about it. The debt was Xing’s not Yuhan’s, and it is speculative to suggest it was a relationship debt.
Legal principles
[38]Rule 12.2(1) of the High Court Rules 2016 provides:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1)The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
[39] The relevant principles governing a summary judgment application are well established:9
The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart. The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent or is inherently improbable: Eng Mee Yong v Letchumanan. In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel.
[40]The wording of r 12.2 “may give judgment” indicates a residual discretion.
Having regard to the various authorities, the position appears to be as follows:10
(a) The discretion implied by the use of the word “may” is to be restrictively applied. In a great majority of cases, once the court is satisfied the defendant has no defence, there is no room for the exercise of discretion.
(b) The residual discretion may be invoked to avoid oppression or injustice to the defendant where:
9 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26] (citations omitted).
10 Andrew Beck and others (eds) McGechan on Procedure (online ed, Thomson Reuters) at [HR12.2.11].
(i)The proceeding involves the actions or possible liability of a third party which is not before the court;
(ii)The proceedings are such that the opportunity should be given to allow discovery or other interlocutory applications to be concluded;
(iii)The circumstances of the case disclose very unusual features, the presence of which leads the court to conclude that the entry of summary judgment would be oppressive or unjust; or
(iv)The combination of complex issues of fact and law justify the dismissal of the application for summary judgment, either as a matter of discretion or because the court cannot be satisfied that the defendant has no defence.
(c) Even where the court is not satisfied that a defence has been made out, in exceptional circumstances the application may be adjourned to allow for other processes to be followed.
Analysis
[41] The issue to be determined in this case is whether judgment should be entered against Elite Legal for liability only for breach of its contract with Daqin for the provision of legal services. This judgment proceeds on the basis of a breach of contract claim by Daqin and not a judgment on liability for a claim by Daqin in tort for professional negligence by Elite Legal. Proof of damage is not an essential ingredient to a cause of action for breach of contract as it is for a claim in tort for professional negligence. This is made clear by the following statement by McGechan J in Economy Services Ltd v Smith & Hughes:11
There simply is no room for the interpretation adopted by the defendants. I am satisfied, accordingly, that the plaintiff has proved engagement, implied term, and breach of implied term. While counsel for the plaintiff advances the claim as one founded in contract and tort, in this Court it being a professional negligence matter I can recognise only the cause of action in contract. That has an incidental result, however, that proof of damage is not an essential ingredient to the cause of action, although if need be I would find there has been some damage through deprivation of potential security.
[42]This point is reinforced by Katz J in the decision of Mason v Dodd:12
11 Economy Services Ltd v Smith & Hughes (1989) 2 PRNZ 657 at 12. See also Zespri Group Ltd v Southlink Supply Ltd [2017] NZHC 1378 at [20]; and Manco Engineering Group Ltd v Timberjack Group OY CA269/01, 13 June 2002
12 Mason v Dodd [2020] NZHC 1508 at [20].
Cases where plaintiffs have been successful in obtaining summary judgment in a professional negligence context generally involve a clear breach of a contractual obligation.
Daqin’s submissions
[43] Ms Wickes, for Daqin, submits that Daqin should be entitled to judgment for liability under r 12.3 of the High Court Rules as Elite Legal breached its retainer by failing to obtain guaranteed title search of the Hillcrest property prior to settlement on 8 December 2022. She submits the effect of the failure was that Daqin’s settlement funds were paid to the mortgagee, but Daqin did not obtain title to the Hillcrest property and Elite Legal’s failure to obtain the guaranteed title search put Daqin in the vulnerable and difficult position where it made the reasonable decision to settle with the caveators to obtain title to the Hillcrest property.
[44] Ms Wickes submits that the loss suffered by Daqin was the lost opportunity before it paid its funds to consider its forward options. Those options would have included withdrawing from the transaction, challenging the caveat, and negotiating the amount required to remove the caveat to achieve ownership of the Hillcrest property.
[45] Ms Wickes submits that the retainer expressly included obtaining a guaranteed title search, and the purpose and effect of obtaining the search within four working days of the settlement is to protect the purchaser against instruments lodged against the title but which are not yet registered or lodged.13
[46] Ms Wickes submits there is no dispute that Elite Legal did not obtain the guaranteed title search, citing urgency, pressure to complete the transaction from Daqin, and the fact it was a transaction between family members as excuses for not obtaining the search. She submits that Elite Legal’s evidence is that on 7 December 2022, settlement was agreed for the following day and there is no evidence that Elite Legal was unable to obtain the guaranteed title search within the timeframe. In addition, Ms Wickes submits that Elite Legal had earlier, on 16 November 2022, obtained a guaranteed title search, militates against Elite Legal’s suggestion that it did not need to get one by reason of the transaction’s nature as a family transaction.
13 Land Transfer Act 2017, s 60.
[47] There was a dispute as to the timeline as to when the caveat was discovered as against when the funds were transferred to Xing and Yuhan’s lawyers, and then Mr Gao’s lawyers. It is now common ground that the settlement funds had already been disbursed by Xing and Yuhan’s lawyers to Mr Gao’s lawyers before the caveat was discovered. Consequently the funds were not recoverable, having been paid to the mortgagee, but Daqin had not received title to the Hillcrest property.
[48] As to the position under the authorities, Ms Wickes submits that the authorities demonstrate the different approach should be taken between those cases where a solicitor has failed to take a particular course of action he or she has contracted to do, and those cases where the solicitor has taken an action but the quality of the action is in issue. Ms Wickes refers to the judgment in Ball v NZ Debt Repay,14 and to the decisions in Economy Services Ltd,15 McRaeway Group Limited v Lane Neave,16 and Hole v Snedden.17 Ms Wickes submits the solicitors had, in each case, failed to do what they had agreed or were bound to do (respectively, failed to give notice within the timeframe of the application to sustain the caveat, failed to dispute a statutory demand within the time-frame, failed to comply with the provisions of the Solicitors’ Nominee Company Rules) and no arguable defence was found, and judgments for liability were entered.
[49]Ms Wickes rebuts the defences put forward by Elite Legal as follows:
3.1Causation (para 16 Statement of Defence)
The plaintiff caused its own loss by not demanding that Xing Guo and Yuhan Yang return the $2,445,534.55…
[50] Ms Wickes submits that this defence is not valid because, as is now common ground, the settlement funds had been transferred to Mr Gao’s solicitors before the caveat was discovered and therefore could not have been repaid.
[T]he Plaintiff has caused its own loss by electing to pay the Sifen Li loan and General Finance fee which it was not required to pay.
14 Ball v New Zealand Debt Repay (in liq) HC Auckland CIV-2002-404-2006, 5 August 2003 at [24].
15 Economy Services Ltd v Smith & Hughes, above n 11.
16 McRaeway Group Ltd v Lane Neave [2017] NZHC 1138.
17 Hole v Snedden [2012] NZHC 1907.
[51] Ms Wickes submits that to obtain title to the Hillcrest property, the caveats had to be removed, and had Daqin known of the Sifen Li loan before it parted with its funds, its options included withdrawing from the transaction, challenging the caveat or negotiating to pay the lender a lesser amount to obtain the Greenhithe property only. She submits that because Daqin only learned of the caveat after it had paid the entire loan, it had less leverage and more limited options and paid the amounts owing under the Sifen Li loan to protect the payments that had already been made to Mr Gao.
3.2Contribution (para 21 Statement of Defence).
The Plaintiff contributed to its loss by electing to pay the additional debts where it could have taken alternative steps to mitigate its loss.
[52] Ms Wickes submits that Daqin was not at fault as Elite Legal’s actions put it in a vulnerable situation and the steps it took did mitigate its loss. She submits it is not realistic to require Daqin to have spent time and money that would have been required to contest the caveat while leaving itself exposed without the title to the Hillcrest property in its name—and the property mortgage-free.
3.3No loss (Paras 22 – 28 Statement of Defence).
[53] Ms Wickes submits that this defence is based on the assertion that Daqin elected to pay the Li Gao loan and other loans after learning of the caveat, but it has been established the funds had already been dispersed to Mr Gao prior to the caveat being discovered. She submits the payment of the Li loan and the General Finance fee by Daqin was reasonable to protect its position.
Yuhan Yang liable for Plaintiff’s loss (SOD para 29)
The Defendant asserts [that] the Sifen Li loan and the General Finance debts were relationship debts– and Yuhan Yang is liable for the Plaintiff’s loss.
Ms Wickes asserts that both debts were in Xing’s name alone and secured against his property and there is no evidence they were relationship debts, or that Yuhan knew about them or was responsible for them. Ms Wickes submits that contrary to the assertion by Elite Legal, Yuhan never agreed she had disclosed all debt against the properties to be transferred to Daqin.
Elite Legal’s submissions
[54] Mr Pasley, for Elite Legal, submits that Elite Legal opposes summary judgment on liability and quantum and:
(a)admits that it, as a solicitor, owed its former client Daqin a duty of care in contract (retainer) and negligence and breached that duty through failing to obtain a guaranteed title search;
(b)denies that it is liable because it did not cause Daqin the alleged damage or loss. There is a reasonable factual basis for the Court to conclude that Daqin would have paid the additional sums (its alleged loss) even if the guaranteed title search had occurred and the caveat and Xing and Yuhan’s additional debt had been discovered before settlement on 8 December 2023; and
(c)Daqin cannot satisfy the Court that the only issue to be tried is one about the amount claimed.
[55] Mr Pasley submits that even if liability was established on the evidence before the Court, which is denied, this is a case in which the issues of liability and quantum are so inter-related that it would be unhelpful, inefficient and potentially unjust to determine them separately. He submits that full discovery, factual evidence and cross- examination, and joinder of a third party, Yuhan, is required to determine disputed factual questions relevant to foreseeability, causation, remoteness, loss, mitigation, and contributory negligence and contribution. Accordingly, the Court should decline summary judgment on liability.
[56]Mr Pasley sets out Elite Legal’s defences to summary judgment on liability.
Duty of care and breach
[57] In the context of Daqin’s revised summary judgment application for liability only, Elite Legal admits that it owed a duty of care to its former client (Daqin), and it breached that duty of care by failing to obtain the guaranteed title search on 8 December 2023.
Foreseeability
[58] Mr Pasley submits that the events triggering the alleged loss claimed were not reasonably foreseeable by Elite Legal, given the underlying transactions and the transaction between family members. He submits that the backdrop to Mr Li’s caveat was that Elite Legal had assisted the parties to finalise and execute a deed of acknowledgement of debt dated 17 November 2022 in which Xing and Yuhan, the registered proprietors of the properties, had agreed that clear title of their properties would pass to Daqin in exchange for Heping’s (and Daqin’s) repayment of the Li Gao loan. Mr Pasley submits it was not reasonably foreseeable that Xing (and likely Yuhan) would in fact misrepresent their debt position to Heping.
Causation
[59] In response to Daqin’s argument that “failure to act” on instructions or retainer warrants a finding of liability, Mr Pasley submits that the causation defence to liability must be taken into account in considering the r 12.3 threshold.
[60] Mr Pasley submits that the defendant can only be liable for damage for which causation is proved (in contract and negligence) and therefore the question is whether Daqin’s loss was attributable to or caused by Elite Legal’s act or omission or put another way whether damage and fault are sufficiently connected for liability is a question of fact and degree.18
[61] Mr Pasley submits that in terms of causation an essential aspect of Daqin’s liability claim and Elite Legal’s defence is that there is a significant factual dispute
18 Sew Hoy & Sons Ltd (in rec & liq) v Coopers and Lybrand [1996] 1 NZLR 392 at 339.
between the parties as to the counterfactual of how Daqin would have proceeded if Elite Legal had undertaken the second guaranteed title search on 8 December 2022 and been able to advise Daqin of the Sifen Li caveat and the loan before repaying the Li Gao loan.
[62] Mr Pasley challenges Yuqi’s assertion that had Daqin been aware of the Sifen Li caveat before parting with the funds Daqin would not have proceeded with the transactions as the benefit would have been negligible and carried risk and he submits the Court must exercise caution in accepting hindsight evidence as establishing (on the summary judgment standard) as to how a plaintiff would have acted but for an established breach of duty.19 Mr Pasley submits that Yuqi’s assertion does not make sense in the light of the background circumstances, namely that Heping had at the material time a prior registered caveat on the title to the Hillcrest property which prevented any dealings with, and protected the property from Mr Li or any other third party. He submits the risk and related apparent urgency claimed by Daqin was not real and it had time to consider its position and Elite Legal’s advice to challenge Mr Li’s caveat.
[63] Mr Pasley submits that the contemporaneous file notes which record Heping’s reasons for paying the Sifen Li loan, one being that the debt was Yuhan’s relationship debt with Xing which needed to be repaid to protect her financial position and avoid her being potentially made bankrupt and/or the debt was linked to Yuqi and another of Heping’s property developments, would suggest reasonably that Heping/Daqin would have repaid the Sifen Li loan even if they had learned of the caveat before paying the Li Gao loan. Mr Pasley submits, to put it another way, that Elite Legal has pointed to a course of conduct that would have been possible if proper advice was provided, and the evidence creates a real doubt as to causation.
[64] Mr Pasley also submits that arguments related to causation crosses over with contributory negligence by Daqin and failure to mitigate loss.
[65] Mr Pasley submits that Daqin cannot establish that Elite Legal caused the alleged loss and therefore summary judgment on liability cannot be granted. He
19 McRaeway Group Ltd v Lane Neave, above n 17, at [62].
submits that if summary judgment on liability was entered against Elite Legal, that would deprive it of the opportunity to advance its defence properly with the benefit of discovery from Daqin and Yuhan and likely cross-examination at trial of the Yang family members.
[66] Finally on this point, Mr Pasley submits that Yuqi’s assertion that Daqin would have not proceeded to acquire the properties if it had known of the Sifen Li loan before paying the Li Gao loan makes little sense commercially, because as a result of the transaction Daqin still received two properties worth conservatively $3,300,000 for
$2,947,090.22, and therefore Daqin still received the equity of around $350,000.
Yuhan’s third party liability
[67] Mr Pasley submits that Xing was married to Yuhan and the debts in issue (the Li Gao loan, the Sifen Li loan and the General Finance fee) are presumed to be relationship debts and if so Yuhan, who is solvent and a current 75 per cent shareholder in Daqin, is liable for the losses that Daqin says it cannot recover from Xing. While Mr Pasley acknowledges that Daqin, or Yuhan, may say that these debts are not relationship debts or are subject to a contracting-out agreement, in the context of a summary judgment application Daqin has not addressed this matter in evidence.
Liability should be determined at the same time as quantum, not separately
[68] Mr Pasley submits that given the issues that have been raised relating to causation, Elite Legal submits that Daqin cannot satisfy the requirements of r 12.3— the only issue to be tried is one of quantum. He submits that there is not a clear dichotomy between the issues of liability and quantum making it unsuitable for a liability-only judgment.
[69] Mr Pasley also points to the discussion in McGechan on Procedure to the effect that the Court may invoke its residual discretion to avoid oppression or injustice to the defendant where:20
20 Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [HR12.2.11].
(a)the proceeding involves actions or possible liability of a third party which is not before the Court (in this case being Yuhan);
(b)proceedings are such that the opportunity should be given to allow discovery or other interlocutory applications to be concluded (in this case, discovery from Daqin);
(c)the circumstances of the case disclose very unusual features, the presence of which leads the Court to conclude that entry of the summary judgment would be oppressive or unjust (in this case causation issues and family debt issues);
(d)the combination of complex issues of fact and law justify the dismissal of the application for summary judgment, either as a matter of discretion or because the Court cannot be satisfied that the defendant has no defence.
[70] Mr Pasley submits that these factors apply in the present case and the Court should exercise its residual discretion not to grant summary judgment for liability.
Conclusion as to liability
[71] I am of the view that Daqin is entitled to summary judgment for liability. The reasons for this view are as follows:
(a)There is a clear breach of contract by Elite Legal. The letter of engagement contained an express contractual obligation to obtain a guaranteed title search and Elite Legal, by its own admission, did not obtain that search.
(b)The breach of contract is actionable without proof of damage as established by the authorities referred to at [41] and [42]. Accordingly, the breach of contract by Elite Legal is actionable without the necessity to prove damage.
(c)Elite Legal’s obligations and their failure to meet those obligations are clearly distinct from the issue of Daqin’s loss and there is a clear dichotomy between the issue of liability and the determination of the quantum of loss.
(d)The various issues raised in relation to liability for judgment by Elite Legal being issues as to causation, contribution, and failure to mitigate loss are issues which go to quantum of Daqin’s loss not Elite Legal’s liability. Issues relating to whether Daqin would have repaid the Sifen Li loan and the General Finance fee regardless of not discovering the caveats before repayment of the Li Gao loan, all relate to the quantum of Daqin’s loss, not Elite Legal’s liability for breach of contract.
(e)Similarly, issues as to whether Daqin could have taken various actions to challenge the Sifen Li caveat and the General Finance caveat, including relying on Heping’s earlier caveats to defeat those interests, all relate to ultimate determination of the quantum of Daqin’s loss and mitigation thereof, not Elite Legal’s liability.
[72] As to any potential liability of Yuhan, the issue of whether the Sifen Li loan is a relationship debt of Yuhan and Xing, and whether she knew about the debt, are not relevant because any cause of action Elite Legal may have against Yuhan does not affect Elite Legal’s liability.
[73] In my view, there is no oppression or injustice justifying refusing summary judgment for liability. There has been an undisputed breach by Elite Legal as solicitors of a basic obligation in a routine conveyancing transaction. None of the reasons given by Elite Legal for not obtaining the guaranteed title search prior to settlement on 8 December 2022 justify the Court exercising its discretion to refuse summary judgment for liability.
Orders
[74]I make the following orders:
(a)Judgment is entered in favour of Daqin as to Elite Legal’s liability for breach of contract.
(b)The issue of quantum of loss is to go to trial in accordance with timetabling to be determined.
(c)Counsel are directed to endeavour to agree costs within 20 working days of the date of this judgment. If costs cannot be agreed in that period, then counsel for Daqin will file a memorandum as to costs (not exceeding five pages) within 5 working days of expiry of the 20 working day period, and counsel for Elite Legal will file a reply (not to exceed five pages) within 5 working days of receipt of counsel for Daqin’s memorandum. A decision on costs will then be made on the papers.
…………………………….. Associate Judge Taylor
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